April 17, 2025

The Alberta Court of Appeal released an important reminder to landlords and contractors relating to tenant improvements. In Xemex Contracting Inc v Aspen Properties (Northland Place) Ltd (2025 ABCA 49), the Court investigated whether a contractor that was not paid for tenant improvements could seek payment from the Landlord through a construction lien. The Court confirmed that Landlords are not liable to unpaid contractors for tenant improvements when Landlords follow the standard industry practice of supervising the work or insisting that the work follow their manuals or requirements. The Court held that a Landlord may be involved in supervising tenant improvements without taking on liability to that contractor for any unpaid work.

To successfully claim against the Landlord, the contractor must provide factual evidence that the Landlord fits within the definition of ‘Owner’ in the Prompt Payment and Construction Lien Act. Proving the Landlord is an “Owner” requires the Contractor to prove three elements:

1. Element 1: The Landlord has legal title to the property;
2. Element 2: The Landlord either: (i) expressly asked for the tenant improvements or (ii) impliedly asked for the work by actively participating in the work; and
3. Element 3: The Landlord either: (i) received a ‘direct benefit’ from the tenant improvements or (ii) the work was done with the Landlord’s privity and consent.

1. Key Lesson: Proving Direct Benefit or Privity and Consent is Hard

The key lesson from Xemex is that Element 3 (a direct benefit/privity and consent) is required and can be difficult to establish. Element 3 requires a Landlord to do more than simply supervise the work, obtain approvals, or ensure the work is done in compliance with existing requirements or standards.  A Contractor must also show the Landlord received a direct benefit or the work was done with the Landlord’s privity and consent.

Proving a direct benefit requires an immediate benefit flowing to the Landlord. Proving that a Landlord was significantly involved in the construction is not enough. Proving the Landlord may be able to relet the renovated space in the future is not enough. A direct benefit may require a Contractor to show that the tenant improvement was complete and resulted in a turn-key space which could be relet to a new tenant with little or no additional costs.  Landlords can defeat these kinds of lien claims by showing that the tenant improvements did not grant the Landlord an immediate benefit. Some examples include proving the tenant improvements were incomplete, required significant additional costs to complete or retrofit, were generally unusable by any future tenant, or would need to be removed at the end of the lease.

Proving privity and consent requires a significant level of involvement by the Landlord, far more than what is commonly seen in the industry. The level of involvement by the Landlord requires something in the nature of ‘direct dealing.’ In this case, the Landlord was actively involved, but their role was to supervise the tenant improvements to ensure they met the Landlord’s standards to facilitate an orderly and safe construction, and to minimize interference on other tenants. This was not sufficient to meet the threshold for privity and consent. 

In Xemex, the Court complimented the Landlord and found the Landlord acted as a prudent landlord should. It found no direct benefit because the tenant improvements were incomplete and the Landlord would need to pay significant amounts of money to make the space attractive to future tenants. There was no privity and consent because the Landlord’s involvement was limited to facilitating an orderly and safe construction program. The Landlord’s involvement was focused on protecting their overarching property interests. This did not translate into directly shaping the specific tenant improvements.  

2. Thinking Ahead

The Xemex case does not change the law in Alberta. Instead, it summarizes the current law and reinforces that Landlords do not take on liability for liens from unpaid tenant improvements, provided their involvement is limited to ensuring an orderly and safe construction program and focuses on the property as a whole and the interests of other tenants. However, it also highlights when Landlords may be at risk of liens from unpaid tenant improvements.

We have identified three concrete takeaways for Landlords:

1. Landlords should consider adding language to their leases which confirms they receive no direct benefit from any tenant improvement work and no privity and consent with the tenant’s contractor;
2. Landlords should be cautious anytime they deal directly with a tenant’s contractors. Consider directing communication through the tenant;
3. Landlords should ensure that contractors are paid in full before releasing any tenant improvement allowance. This includes ensuring any subcontractors are also paid by the contractor.

Contractors need to be extra careful when performing tenant improvement work. Absent unusual circumstances, it is very difficult to use a construction lien to collect from the Landlord.

If you have any questions or disputes related to construction liens, tenant improvements, or other construction matters, don’t hesitate to reach out to our construction litigation group. Our lawyers have the expertise and experience to assist with commercial, development, construction, and condominium disputes.

Author

Michael Bokhaut

Partner and Commercial Litigation Group Co-Chair
T: 403.705.3328
E: [email protected]

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